Treasury Secretary to Congress: U.S. to Hit Debt Ceiling in October

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BRENDAN SMIALOWSKI / AFP / Getty Images

Secretary of the Treasury Jack Lew in Washington, DC, July 11, 2013.

Come mid-October, the U.S. government will no longer be legally allowed to issue more debt, according to a letter written by Treasury Secretary Jack Lew to Congressional leaders earlier today. That’s when the Treasury will exhaust the so-called “extraordinary measures” it has undertaken to avoid going over the Congressionally imposed limit on total federal debt of $16.7 trillion set in a budget deal in May.

The limit on federal borrowing is a holdover from a time when Congress would individually approve each new issuance of debt. As the financing needs of the federal government became increasingly complex during the 1930s, it decided to move towards an aggregate limit on debt, allowing the Treasury Department more freedom to decide on the timing and nature of debt issuance as long as it remained below the congressionally-mandated debt ceiling.

There is, of course, a redundant quality to all of this. Because Congress controls both spending and taxation, it can control the total level of debt without needing to set a debt limit at all. And in recent years, the existence of the debt ceiling has become an issue of global consequence, as congressional Republicans have used the threat of not raising it as bargaining tool to extract concessions on spending cuts from President Obama and Democrats.

(MORE: Behind June’s Surprise $116 Billion U.S. Budget Surplus)

Economists like University of Michigan’s Justin Wolfers have argued that the first of these showdowns in the summer of 2011 hurt the economy by reducing both consumer and business confidence. It was also a motivating factor in the S&P’s downgrading of the United States’ credit rating, which reflects borrowers’ confidence that the U.S. will meet its financial obligations.

And the refusal to raise the debt ceiling would amount to the United States refusing to pay what it already owes. So far, Washington has managed to avoid finding out what would happen if it defaults on its obligations, but the consequences would most likely include higher interest rates, as well as confusion and panic in financial markets across the world. In his letter, Secretary Lew argues that failing to raise the debt ceiling would “cause irreparable harm to the American economy.”

Republicans, however, are not swayed by this argument. In a press conference last month House Speaker John Boehner reiterated that he is unwilling to raise the debt ceiling without proportional cuts in spending. President Obama, on the other hand, has indicated he is unwilling to negotiate over the debt ceiling. Whether these men mean what they say, or whether this is just another in a long series of games of political chicken, we’ll find out in the coming months.

MORE: Why Many Americans Feel Like They’re Getting Poorer

50 comments
AAKDJ
AAKDJ

Folkersystem Vert Shock: Adam Folker And Justin 'Jus Fly' Darlington Reveal An Insane Method To Pump Up Your Vertical By 9-15 Inches And Throw Down Dunks On Helpless Defenders Like A Total Badass...effective ways to increase vertical jump

AmineBenLakhal
AmineBenLakhal

Hahahaha emergency budget for the war in Syria and job's done! Very humanitarian millitary actions indeed...

sailvarmint
sailvarmint

@spygun Not really. Already seeing questions about and the debt ceiling Stay tuned It's the ol "guns vs butter" story

bigsloane
bigsloane

@spygun @TIMEBusiness new military action will enable his satanic majesty Obama to ask for emergency budget increase to fund it..job done

mary.waterton
mary.waterton

If Chris Matthews and the liberals democrats in Congress had their way, they would set the debt ceiling to INFINITY and spend accordingly.

Right now the Federal Reserve is printing money and buying up the government's own debt. That's a very dangerous activity. It has the potential to destroy your currency, an outcome that is orders of magnitude worse than an economic depression.

DRoy1
DRoy1

Obama will win, Americans will loose and the Republicans will captiulate or will they.?

My logic goes like this. We invade Syria creating more debt. Republicans get to ramp up the war machine, making fat cats happy.

Where will the money come from? An increase in the debt of course which the Republicans will back, because we will be at war.The blinders will go up with both parties because there will be a common cause for fighting evil throughout the world.

Democrates win with more spending, Republicans win because they have a war machine to ramp up and the American common man/women gets stuck with more debt.

Bobi1964
Bobi1964

@anon99percenter This is especially worrisome 2 me as I am on SSDI. i wish it affected House/Senate paychecks. Plus Syria war talk? WTF?

DumbNiggerz
DumbNiggerz

cut off obama.. at any cost.. put him in a box and seal it.. keep him out of govt at any cost

thebax
thebax

Hey...I've got a great idea. Lets waste a trillion dollars in Syria. Why fool around, you want to put this country in the third world classification what better way to waste money? Lets back Al-Qaeda and give them advanced weapons that they can use against our troops! I'm really tired of Obama and the GOP is no better.

manda_priest
manda_priest

@TIME What does the GOV care since they don't have to balance or create a budget? Just keep spending and raise that ceiling!

Leftcoastrocky
Leftcoastrocky

Are the Teapublicans going to hold the full faith and credit of the US hostage (thereby damaging the US economy) unless they get their way again.  Shameful.



(If the shoe were on the other foot and it was Obama threatening to hold the full faith and credit of the US hostage the Teapublicans would scream that it was an impeachable offense)

RalphFucetolaJD
RalphFucetolaJD

 It is false economic reasoning to equate refusing to borrow ever more with "defaulting" on the Federal Debt. There is plenty of tax-take to cover the interest on the debt.

We have already hocked our children; now the (G)OP,junior partner with the Demos, is getting ready to pawn our grandchildren.

What do you do with a debt-addict? The same as with any addiction: JUST SAY NO!

Who should "take the haircut?" Not the victims of the addiction, namely Americans, but the enablers of the addiction: the Federal Reserve and all the other Treasury Bond Holders.

Anyone who loans money to a known, bankrupt spendthrift deserves one response only: REPUDIATION.

As Lysandor Spooner opined over a century ago, "we" the American people do not owe the Federal Debt to anyone who deserves repayment. 

Ron Paul said in 2012 that the "next president" would have to preside over the bankruptcy of the Federal Govt. That remains true. The coming hyperinflation, especially if the Debt Limit is abolished, will prove that to all those fools and cronies who still have faith in the bizarre religion of Fiat Money.


bill1
bill1

We should pay our obligations - they have all been authorized by congress.  

What a stupid bunch of idiots we have elected!

wenchypoo
wenchypoo

Here comes our Greece moment...the final collapse is here.  Back in '08, it was said that in order to raise enough money to pay our bills, our taxes would have to DOUBLE.  I suspect TRIPLE is more like it when you throw in interest and penalties.

What do you think Obamacare would do to our taxes?  if enough groups are tossed onto the exchanges (as hoped), it would do away with employer-sponsored health insurance COMPLETELY, thus doing away with a very large a well-used tax shelter, making more of our income subject to tax.  This would effectively double what we pay now without ever having to touch the political hot button of rate raising.  It ain't just the rich who'd be affected here--it's anyone who now has health insurance from their job.  The way the Europeanification of America is going, anyone WITH a job s going to be considered rich!

dr34miiii
dr34miiii

@TIME we tore through the roof decades ago. Since money is imaginary why don't we imagine we have more

spot60spot
spot60spot

@TIME They'll just raise the debt ceiling again, or remove it altogether.

Strawbizzle
Strawbizzle

This doesn't have to be a democrat v republican debate, as it effects all of us.

If you max out your credit card, you adjust your budget and pay it down accordingly.  You don't just go out and get a new card.  It's a sustainability issue, no matter where you fall on the political spectrum.

rakapla
rakapla

@TIME Perhaps this will negate our involvement in Syria.There may be a point when we can't afford to go to war cause our debt won't allow it

sgreco1970
sgreco1970

And the Pentagon says they want to go to war with Syria?

They'd better start having that bake sale today.

tom.litton
tom.litton

@DRoy1 If Obama really wanted a war with syria, he would have done so the last time they used chemical weapons.


For that matter, he would have already announced Syria had crossed the red line and asking the UN to sanction a war already.  

It really seems like he is trying to get out of a war while not going back on the "red line" comment.  I think there will be a token military response and that's it. 

anon99percenter
anon99percenter

@Bobi1964 When POTUSes suddenly find domestic issues causing them probs, easiest way 2 deflect is 2 attack some foreign nation

MrBenGhazi
MrBenGhazi

@thebax The only person suggesting this is you. The administration is considering military solutions that require no troops on the ground and no trading of weapons. Wake up.

DrinkerOfTheRye
DrinkerOfTheRye

@Leftcoastrocky Exactly,  like when Sen obama said on the senate floor in 2006,

"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion. That is ‘‘trillion’’ with a ‘‘T.’’ That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will in-crease the debt by almost another $3.5 trillion. Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we’ll spend on Med-icaid and the State Children’s Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education..."

tom.litton
tom.litton

@RalphFucetolaJD Just because there is money to pay the interest on the debt, doesn't mean there is money to pay for all obligations.   Defaulting on those is still a default.  

If there is a default, then it will make the debt significantly worse.  We will eventually have to pay all of our obligations, but delaying it by defaulting will make any new contracts / debut significantly more expensive.  

 The worst part is there is no reason for it.  The debt is expected to stabilize for the next 20+ years.   Beyond that the problem is entitlements, and defaulting now will make that problem worse, not better.

Leftcoastrocky
Leftcoastrocky

@RalphFucetolaJD The economy will be critically weakened for our children if we fail to invest in infrastructure, R&D and education.

tom.litton
tom.litton

@wenchypoo The deficit is falling fast (one of the fastest rates of decline ever).   Because of that, the debit is expected to be stable for the next 20+ years (according to the CBO) at the current tax rate (and our current tax rate is one of the lowest it's been in a very long time).   

 Obamacare will require employers to provide health insurance.  They can't simply do away with it.  It's true the provision has been delayed, but it hasn't been removed.

barneydidit
barneydidit

@wenchypoo Uhmm..."Europe" which is actually a collection of individual countries with different ways of doing things, in general employs some form of single payer system for medical care.  But I'm sure it's just coincidence that every other industrialized country on the planet, with the possible exception of communist China has gone to this system.  It's only a matter of time before they all realize that they're wrong....and Republicans are right. 

SeanMaddox
SeanMaddox

@spot60spot @TIME Well we got to pay for all the bills your generation racked up, 14 trillion and counting still. Since conservatives won't agree to even reasonable and sane revenue generation nor will they agree to axing the largest pork barrel spending in Washington, military spending, it doesn't leave us many choices.

kernals12
kernals12

@Strawbizzle debt held by the government behaves differently from debt held by an individual

tom.litton
tom.litton

@Strawbizzle A mortgage analogy is more appropriate.  

Suppose a person gets a 3% raise every year, and uses that money to by a new house (with a new mortgage) that is 3% more expensive than the previous house.  In such a case his debt is increasing, but his finances are stable.  He will never default, despite carrying more and more debt.  Also note, it doesn't matter at all how much debt he has.  

Of course, this analogy breaks down quickly once you include the dynamics of the US economy (we rarely get exactly 3% GDP growth consistently, nor do we increase our debt by 3% every year).  And also the amount the US government spends effects GDP growth, and therefore effects it's income.  This is why Greece's debt outlook hasn't improved a lot considering how much spending they cut. 

SeanMaddox
SeanMaddox

@Strawbizzle A countries economy and fiscal system doesn't run nor is comparable to a simple credit card. This is a ridiculous analogy. While it is critical to get long term fiscal sustainability, it isn't as simple as budgeting a freaken credit card.

realghostbuster
realghostbuster

@rakapla @TIME The GOP candidates were talking about countries like Iran and others during the primary debate, and how it's basically a death sentence to go to war with them.  If we're not going to defend our country from ACTUAL threats - i.e.: people who 2 U.S. presidents insist are funding terrorism - then helping the people of Syria is outside our league.  It'd be nice if we could afford to be the heroes of their day, but we can't.

sgreco1970
sgreco1970

@Kentrell95 @TrevJSmith @TIME republicans wont raise taxes or minimum wage. And while they say they want to cut spending, its become crystal clear they only cut spending on the taxpayers -military and NSA budgets swell and swell. 

But right now both sides want war with syria -and how will we pay for that? Bet they'll find that money, while they close more public schools.

bigsloane
bigsloane

@spygun @TIMEBusiness... could see it coming from miles away..covers Benghazi lies and papers over ongoing illegal immigration arguements

realghostbuster
realghostbuster

@SeanMaddox @Strawbizzle It doesn't matter how "simple" it is.  The gov't spends WAY more than it needs to.  Stuff like scientific research, foreign aid, etc., is important, but if people want the gov't to be the ones taking it on, the citizens need to pay more taxes.  And since higher taxes is so unthinkable, obviously, we need to scale back the gov't's "obligations".

SeanMaddox
SeanMaddox

@sgreco1970 @TrevJSmith @TIME Eisenhower, one of the last great conservatives, warned us about the military industrial complex. Reagan, and his ilk, completely ignored his warnings for three decades, and now we have the beast that is the military industrial complex, that consumes more and more of our nations vital resources, and produces nothing of benefit to its citizens nor to the countries long term health. This is one of the many reasons why I don't take conservatives supposed fiscal constraint seriously one bit. Not to mention, Democrats have always shown to be more fiscally responsible because they are actually willing to cover their expenses with revenue, even if you don't agree with where the money is going or not.

tom.litton
tom.litton

@realghostbuster @SeanMaddox @Strawbizzle I agree.  We got into this mess when republicans and democrats compromised by both lowering taxes and increasing spending.  It makes sense to get out of it by a compromise that raises taxes and reduces spending.

This, by the way, is exactly what Obama has and is offering.